John Westwood
Douglas Westwood Ltd.
Offshore Europe’s oil production could fall to 50% of its present levels by 2020. Today, Western Europe is the world’s seventh largest oil producer, and almost all of the hydrocarbons come from offshore. Activity off Norway and the UK, which together held almost 80% of Western Europe’s total original offshore oil reserves, dominates the region.
European offshore oil production peaked in 1999. To date, nearly 500 offshore fields have been developed or are under construction off Western Europe, of which nearly 50 have been depleted. Although considerable volumes of oil and gas still remain, new discoveries and field developments are smaller. As a direct result, oil majors are exiting the region to chase billion-barrel prospects elsewhere.
One area drawing investment is the Gulf of Mexico, where growth is mainly based on an anticipated surge of activity in the province’s deepwater areas.The World Offshore Drilling Report shows numbers for deepwater exploration and appraisal wells rising from 211 (1999-2003) to 267 (in the period to 2008). Although a decline appears after 2006, deepwater operations will achieve a sustained level of approximately 300 wells/yr through to 2010.
Factors for change
The two oil price shocks of 1973 and 1979 resulted in an unprecedented drive to find and develop new sources of oil and natural gas. Much of the new investment targeted the North Sea, where major fields justified correspondingly large investments. More than 30 years later, this major resource is following the shallow water GoM into terminal decline, with oil production past peak and concerns over this decline contributing to current high oil prices. Gas production is in decline in the UK, but compensated for by a continuing growth from Norway.
Unlike the GoM, Western Europe does not seem to have similar levels of economically viable deepwater reserves that are currently maintaining GoM production and driving exploration.
UK twin peaks
UK oil production growth was rapid, reaching 2.5 MMb/d in only nine years. The Piper Alpha tragedy and its aftermath slashed output for five years, leaving production below its previous levels until 1994. In 1999, another peak occurred, but this peak marked the point of no return. UK offshore production has been in decline ever since, with the country expecting to become a net oil importer in 2007-8.
In 1979, just 14 UK offshore oil fields were producing an average of 111,765 b/d each. In 2003, there were 157 oil fields, but average production was down to 12,856 b/d.
New oil and gas discoveries are half the size they were 10 years ago, about 20-30 MMboe, and are in increasingly complex reservoirs. The GoM experience is similar. Over the last 40 years, the average size of a new discovery has fallen from 250 MMboe to under 10 MMboe, a reduction of 96%.
North Sea exploration activity has fallen dramatically. In 1990, 200 exploration wells were drilled offshore UK. In 2004, fewer than 50 are expected.
Norway is showing the same oil depletion pattern, but much delayed.
Opportunities
Despite offshore Europe’s maturity, some outstanding opportunities remain. And despite impending decline, total expenditure in 2005 will total $20 billion.
According to the Norwegian Petroleum Directorate, “Only one quarter of the estimated recoverable resources on the Norwegian continental shelf has been produced and sold, the quarter that was easiest to find and recover. Much more effort will be needed to recover the remainder.”
And what of the UK? The operators association, UKOOA, says, “Over the last 35 years, 33 Bbbl of oil and gas equivalent have been produced from the UKCS. Estimates of the remaining reserves potential range from 22 to 31 Bboe.” Today, plans exist to develop only half the remaining reserves potential. Interestingly, 13-19 Bboe in brownfield reserves remain to be produced.
There are 250 undeveloped discoveries offshore the UK, of which 150 are within 10 km of existing infrastructure and few are more than 50 km away. Such numbers support the suggestion that there is at least as much oil and gas remaining as has already been produced.
The North Sea has stripped away much of its “gold plated” approach to field development and operations and has imported low-cost minimum facilities field development approaches from the GoM that are well suited to the many small prospects that remain. We now expect to see a stream of small-field developments forming the basis of future activity in the UKCS.
The commercial trend in the North Sea is now similar to the GoM 10 years ago, when the small independents began to acquire mature assets from the majors. New small players are entering the patch, bringing with them management methods better suited to developing small fields and maximizing profits from the depleting old fields, and host governments are continually adapting their offerings to make them more attractive to this new breed.
UK gas production is entering terminal decline, while Norway’s remaining gas reserves are the largest in Europe. By 2005, Norway will be one of the five largest gas-producing nations in the world. The massive Troll field is largest, followed by Ormen Lange. With no surface installations, two 120-km 30-in pipelines will transport the unprocessed wellstream to the Nyhamna terminal in mid-Norway and then via a 1,200-km 42-in. export pipeline to Easington in the UK. Production, planned for late 2007, will meet 20% of UK gas demand. Gas from the third big one, Snøhvit, along with the Albatross and Askeladd fields in the Barents Sea will move via a 145-km pipeline to an LNG plant and markets in Europe and the US. And Norway still has more gas prospects waiting a route to market.
Annual UK opex should remain steady at about $7 billion over the next few years, with Norwegian opex settling at $5 billion. Although the region’s capital expenditure is now in long-term decline, operational spend could be maintained at its present high levels for some years, bringing with it considerable opportunities for contractors related to fields of all sizes as operators seek commercial innovations to help restrain costs.
Author
John Westwood heads the independent energy analysts Douglas-Westwood and over the past 19 years has been responsible for many business and strategic studies of the oil and gas industries. Email: [email protected].
